IDC balance sheet will boost new small business agency - Patel

Thursday, May 24, 2012

Cape Town - The Small Enterprise Finance Agency (Sefa) will have access to millions of rands of funding from the balance sheet of the Industrial Development Corporation (IDC), says the Minister of Economic Development Ebrahim Patel.

Unveiling Sefa on Monday, Patel said the new entity - a result of a merger between Khula, the SA Micro Finance Apex Fund (Samaf) and the IDC's small business lending portfolio - would be a wholly-owned agency of the Industrial Development Corporation (IDC).

The new agency will focus on lending loans of up to R3 million to small businesses.

"We want to ensure that the impact is felt in jobs, in sustainable enterprises and in the growth of entrepreneurship in the economy," said Patel, who added that the agency would tap into the IDC's balance sheet to mobilise resources for Sefa.

He planned to outline this in more detail during his Budget Vote speech on Tuesday.

Currently, the IDC has pledged R921 million over the next three years to Sefa, while the government has put in R535 million.

Also important, said Patel, would be the know-how that the IDC brings in the lending market.

Samaf and Khula had previously lent out through banks and financial intermediaries which would then onlend to small businesses.

He said Sefa would continue to use these two channels, but would add a third channel - that of direct lending, through its direct lending product which is currently being piloted.

The IDC could also be better placed to include more small businesses in any major projects, the development finance institution finances, by working out where the opportunities lay for contracts to small businesses - and thereby breaking the current high concentration of big businesses in the economy.

Sefa would also work closely with other agencies, such as the Small Enterprise Development Agency (Seda) as well as with the various development financial agencies in the provinces that finance small businesses - including Limdev, Gauteng Enterprise Propeller (GEP), the Free State Development Corporation (FDC) and the Eastern Cape Development Corporation (ECDC).

The new agency would also partner with the Postbank which would be set up soon.

It would also work with the commercial banks, to ensure its products complemented those products that banks developed.

Added to this, Sefa would also work with large companies to encourage large companies to mentor small firms and bring them into their supply chains.

Patel said the cost-to-lending ratio was also key and he said the agency would save about R20 million a year with office space and services no longer being duplicated.

He said entrepreneurship was vital to any dynamic and successful economy and can unlock the talent and energy of citizens to produce wealth.

There was a need to bring more small businesses into the manufacturing sector, agro-processing, mining services, tourism and services and infrastructure support and the green economy, said Patel.

The merger to form the new agency was identified in the New Growth Path as one action which could boost small businesses.

Patel said the department was initially advised that a merger of this kind could take between three and four years, but he pointed out that Cabinet had emphasised the urgency in setting up the agency so that funding to small businesses could get a boost as soon as possible.

On Monday, he also met with the agency's new board, which is chaired by Sizeka Rensburg, and he and the board had agreed to set up a dashboard which could be used to track the progress of the agency.

Rensburg said the agency would also help small businesses to take advantage of infrastructure projects by linking up with the Presidential Infrastructure Coordinating Commission.

She said the additional capitalisation by the IDC would help the agency to reach more small businesses than previous small business funding agencies had reached.

The agency's current acting chief executive is Willie Fourie.

Sefa's products include bridging finance, revolving loans, asset finance, working capital and term loans.

The agency will also provide wholesale microfinance facilities to financial institutions - following on the practice of Samaf and microfinance of up to R100 000 will be available to micro enterprises.